Exercise 12-2 Dropping or Retaining a Segment [LO12-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 918,000 $ 262,000 $ 406,000 $ 250,000 Variable manufacturing and selling expenses 461,000 114,000 192,000 155,000 Contribution margin 457,000 148,000 214,000 95,000 Fixed expenses: Advertising, traceable 69,200 8,400 40,700 20,100 Depreciation of special equipment 43,700 20,800 7,500 15,400 Salaries of product-line managers 115,800 40,100 38,900 36,800 Allocated common fixed expenses* 183,600 52,400 81,200 50,000 Total fixed expenses 412,300 121,700 168,300 122,300 Net operating income (loss) $ 44,700 $ 26,300 $ 45,700 $ (27,300) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.